Bourgeois Bling: New-Money Millionaires Flood Luxury Market

Aug. 17, 2007 — -- The merchandise is eye-popping, the prices astronomical and the clientele, not exactly old money.

Not so long ago if you walked into a really exclusive luxury purveyor the only people who could conceivably afford the real bling were princes, sheiks or crooks. Now a growing number of self-made millionaires are changing the face of the luxury market, demanding the kind of lavish lifestyle that used to be reserved for royals.

Take for example, three of the world's great luxury brands Tiffany, Cartier and Bulgari. They inhabit a single intersection in Midtown Manhattan. Walking into one of their stores is still like walking into a museum. Jewels encased in glistening glass cases fill the room, and handbags hang like paintings on the walls. But unlike a museum these things aren't being saved for posterity.

On a recent visit, Bulgari CEO Francesco Trapani proudly showed off his jewels, rattling off the price tag attached to each in a calm, even tone. "This one is even more expensive," he said. "The ring is maybe $1.6 million. We're talking about really beautiful material here."

Trapani isn't in denial. For an increasing number of people these items are affordable. And unlike the elegant clothing Trapani sports, some customers in Bulgari now arrive in khakis and T-shirts, but they walk out with some major bling.

Bourgeois Bling

The luxury retail business is booming. Already a $150 billion a year industry, that market will grow by at least 6 percent annually over the next five years, analysts estimate.

When second quarter results were released at the end of July 2007, Bulgari showed a 13 percent increase in revenue over 2006. Trapani attributes the spike in income to the monumental growth of wealth across the globe. In the United States alone, the average net worth of the American family increased 12 percent according to data from the Panel Study of Income Dynamics. Trapani says that surge has been good for the top end of the market.

"In the last five years the growth of wealth has been very aggressive and then you see more and more people spending a lot of money for luxury goods," said Trapani."Being jewelry, boats, airplanes or real estate, you see more and more people that are extremely rich that are looking for really extraordinary items."

The surge in wealth has prompted luxury retailers like Bulgari to reach for the stratosphere. Known for its already pricey jewelry, Bulgari is now designing even more expensive pieces, and people are buying.

"We have items for $10, $12, $15 million," said Trapani. "We're focusing more and more attention on these items because a few years ago the market was basically nonexistent and now there are opportunities for selling these fantastic items."

Items such as an $8 million diamond necklace are on display at Bulgari's flagship U.S. store on Fifth Avenue in New York City. Also on display is a pair of sapphire and diamond earrings carrying a price tag of $2 million — that's $1 million for each ear.

Who's Buying?

It's not only the richest of the rich who are indulging in luxury goods these days. More and more Americans of somewhat modest means are pinching pennies in order to get a taste of the finer things in life.

"Many of my clients want certain high-end designer items, regardless of cost, even if they have to skimp a bit on other things," said Claudia Kaye, a personal shopper and wardrobe stylist. "These items are now in demand by everyone, not just affluent people," she added.

The key, says Kaye, is knowing how to combine one or two luxury items with everyday attire.

"I think people are learning that if they mix luxury items with midprice ones they actually get more for their money in the long run," said Kaye.

Treating yourself to an $800 handbag can go a long way. It's an investment of sorts if you think about it.

Buy an easily recognizable designer handbag, like Louis Vuitton's signature LV design or Fendi's FF pattern. A classic bag will last a long time and spread out over 20 years, that bag only costs $40 a year, or $3.33 a month. Pair it with an inexpensive dress from a bargain retailer like Forever 21 or H&M and you have instant style.

"It's not just for the billionaires and the extreme net worth," said fashion industry insider Patti Pao.

Pao closely examines luxury retail trends for her New York consulting firm, the Pao Principle, and has noticed a growing trend in the consumption of luxury goods — fashion is becoming more accessible to the masses.

"Everyone from the teen in the mall to the newly minted hedge fund billionaires is buying," said Pao.

Kaye agrees and says that her newest clients' interest in luxury goods stems from a fascination with Hollywood.

"People see high-ticket clothes and accessories photographed on celebrities and suddenly they become 'must have' items," said Kaye. "Even teenagers feel the need for designer jeans and bags since many of the most photographed celebrities are teens themselves."

As teens trade up and new classes of consumers emerge, luxury retailers are responding quickly — adapting strategies to cater to their new clientele.

Emerging Markets

Taking notice of the developing trend, high-end stores are appealing to a new consumer base by expanding stores to areas outside of the typical U.S. luxury markets in New York and Los Angeles. Bulgari's CEO Trapani says he knows where to access the newest market.

"We're investing our money in other cities like Phoenix or Atlanta," said Trapani. "Cities that up until two years ago weren't interesting to us."

The United States isn't the only country with a changing luxury customer base. Bulgari is now using the small market plan it developed in the United States as a model for business across the globe.

"This is a process that goes on not only in the U.S. but also in the rest of the world," said Trapani. "You can do a good luxury business in many different countries, many different cities."

Luxury retailers aren't the only ones becoming increasingly familiar with uber-expensive jewelry and other luxury goods. Stylists and personal shoppers like Kaye are the ones behind most of the multimillion-dollar deals because they're the people clients entrust to pick the right piece.

"I would say about half of my purchases are luxury goods," said Kaye. "I think luxury goods are becoming more popular with a greater number of income levels," said Kaye.

Luxe Life Longevity

If increased spending in the luxury sector is a trend, will it eventually be subdued like most trends that level out over time? According to at least one industry analyst, this trend is here to stay.

"We're a nation of consumers," said Pao. "A true fashionista prides themselves on being this highly evolved brand of highly expensive, highly exclusive goods."

The demand for luxury goods remains steady while the availability increases.

"The market is very healthy because luxury goods don't cost a lot to make and they can demand a premium of 10 times what they cost to make," said Pao. "They never go on sale."

That's good news for retailers like Bulgari.

"The market is upgrading," said Trapani. "The trend is a more expensive, sophisticated product."

Major brands like Bulgari and small, more personalized business owners like Kaye are enjoying significant growth servicing that market. But Kaye offers one final piece of advice on purchasing luxury goods: check your local thrift store.

"After searching for a hard to find bag in stores everywhere, I found it in brand new condition in a thrift shop. It had just been donated by a woman who had never used it," said Kaye. "My client was thrilled by the bag, not to mention the price. Even the wealthiest of people love a bargain."